That's one reason why some journalists are hyperventilating over the capacity of the iPad to save their industry. The collapse of magazine advertising revenue has inspired breathless hand-wringing about the death of magazines. But now the emergence of a hot new piece of hardware has publishers and media journalists equally thrilled that our industry can atone for past mistakes by charging for content on Apple's news slab. Please don't get me wrong: the iPad is exciting. It could potentially revolutionize popular computing and entertainment. But would it really revolutionize publishers' bottom lines?
Rory Maher of TBI Research crunches the numbers and finds that even with optimistic estimates about iPad sales and magazine app purchases, publishers should not expect e-readers to save them:
It's useful to step back and consider the long game for publishers. Magazines get money from (1) readers and (2) advertisers looking for readers. The problem today isn't the readers, who are all over the Internet. It's the ads. Magazine advertising has slipped in the last two years by 12%. Nobody expects print ads to rebound to their early 2000s levels, and everybody is still waiting for That Big Idea that helps publishers monetize their online content. Maybe it comes from location-based ads. Maybe it comes from cross-publisher partnerships and a Netflix model that bundles magazine subscriptions and distributes them electronically to computers and e-readers. Nobody knows.
Even if iPad sales soar past expectations and reach, say, 16 million units over the next two years total magazine subscription revenue would equal about $2.8 billion per year under the above case scenario [50% of iPad owners subscribe to two magazines on average]. That's less than 30% of annual circulation revenue for the entire magazine industry and only about 10% of overall industry revenue (circulation + advertising).
But this is the key to the story: magazines are losing ad revenue, but they're not losing readers. In fact most of them are gaining readers -- they're just gaining them online, where our eyeballs are poorly monetized. All publishers really want is a platform where they can charge readers for reading. The iPad gives them that opportunity. It's fair to say publishers are being overly-optimistic with their prices for iPad apps. It's not fair to say they're wrong for trying.
This article available online at: